When news first broke of former chancellor Gordon Brown’s plans to replace Personal Equity Plans (Peps) in the 1999 Budget, the reaction was less than favourable.
Here was a new model, the individual savings account (Isa) that did away with a well-known saving scheme and offered lower savings limits to boot.
A swift uptake amid the concurrent equity market boom, thanks in part to widely successful marketing campaigns, soon made advocates of the product’s worst critics. The Isa fast became a fixture, and Peps a distant memory, at best, for a generation of savers.
But fast-forward to the tail end of 2016, and the latest expansion of the Isa brand may be about to create a similar level of disruption in the savings landscape. George Osborne’s Spring Budget 2016 announcement of the Lifetime Isa (Lisa), a house purchase and retirement savings hybrid, brought its own fair share of unfavourable reactions, including concerns that the Lisa would jeopardise auto-enrolment implementation and perhaps the Isa concept as a whole.
The Lisa gives those aged 40 and under a government top-up of £1,000 for every £4,000 saved per annum, with penalty-free withdrawals for house purchases and savers who reach 60 years of age. Those who withdraw before this point, or for anything other than purchasing a home, will be subject to a 25 per cent penalty fee, which could see savers lose as much as £5,000 from savings of £20,000 should they choose to access their funds early.
Help or hindrance?
For advisers, the relatively meagre annual limit means it is unlikely to be a significant part of their clients’ plans. However, Danny Cox, chartered financial planner at Hargreaves Lansdown, points out that while the product may not “increase the number of people taking advice in the short-term, things may look different in the long-term”.
Mr Cox says: “If it encourages people to invest, that ultimately widens the number of people who will need advice at some stage in their lives. So I think long-term, it may well encourage people to seek out advice.
“[Isa investors] don’t take advice in the majority of cases, but if someone did come to you and said: ‘Look, I’ve got this money to invest, how should I invest it?’ then you wouldn’t be doing your job properly unless you said: ‘These are the product and tax wrappers you should be using, including the Lisa, Isa and Sipp, if it’s appropriate’.”
But others still have worries. Despite the relatively straightforward restrictions on the product, some providers have voiced fears that the Lisa could result in large swathes of people losing out in future.
